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VIDEOWhat Traders Can Learn From Lexmark, Eastman Kodak Charts
Remember that making money in the markets is about more than just picking momentum stocks and riding them to the moon.
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Eastman Kodak has a fundamental story that really caught my eye. But the above chart shows why playing the fundamentals of a company can wreck havoc on a portfolio. Moving from film to digital products, EK has re-invented itself and has some of the most exciting products on the market in its field. Nonetheless, I always abide by the signals I receive from the charts, and buying at the time of my first article would leave you severely underwater if you remained stubbornly married to the fundamental story. Likewise, if a trader didn't have a predetermined stop-loss in place the same damage could have been done to one’s bottom line.
I like to update the stories that I write to drive home a very important concept in trading. As traders we won't always be right in our trades. It's vitally important to get used to that fact and accept it. With proper risk management and loss control, a trader can be right merely half the time (or even less) and still make sizeable returns. The key is to know when you're wrong. So let’s take that concept and put it to work with our above trade in Eastman Kodak.
Within a week of the article appearing on Minyanville, Eastman Kodak began a monster run of over 30% in a very few short weeks. Not that I need to tell traders this, but if I have a gain of 30% and let it completely reverse on me, then I need a major revision of my trading plan. In fairness to traders who aren't sitting right in front of the screen for eight hours a day, the reversal in Eastman Kodak was quite swift, happening in just a matter of a few days. Nonetheless, this quick action hones in on the importance of having solid stops in place for such an event. Granted, with hindsight it's easy to replay a trade and pontificate to the world how we would have handled each move with precision and beauty. The reality is that trading decisions are made in the heat of battle and with a vision that's murky at best.
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